On the eve of today's election for the upper house of Parliament, the Bank of Japan leaked word that it will lower the rate it charges for loans to commercial banks on Monday.
The planned move, reported Saturday, was expected to boost Prime Minister Kiichi Miyazawa's ruling Liberal Democratic Party in balloting today for 127 of the 252 upper house seats.
In an eleventh-hour stumping speech, Miyazawa virtually confirmed the pending move by declaring that "a decline in interest rates will erase unclear prospects for the economy."
The bank is expected to lower its central discount rate by 0.5% to 3.25%, the fifth decrease in the key lending rate since July 1, 1991, when it shaved 0.5% off a 6% lending rate, the Japanese media reported. It would leave Japan's rate a quarter of a percentage point higher than the U.S. Federal Reserve's discount rate of 3%.
Although advance leaks of central discount rate changes in Japan are common, it is rare for one to occur on the eve of an election.
An "emergency meeting" between the government and leaders of the ruling party that Miyazawa called Friday night set the stage for the central bank's move. The government agreed, officially for the first time, to compile a package of measures, including a supplementary budget, to prop up the economy in mid-September.
Both the emergency meeting and the pending discount rate cut were designed to prop up plunging prices on the Tokyo Stock Exchange, which set two new lows for the year Wednesday and Friday. The Nikkei average closed the week at 15,497.79, the lowest since April, 1986.
But the cut also was expected to boost ruling party fortunes in the election. Throughout an 18-day campaign, Liberal Democrats stressed pledges to prop up sagging growth in the economy.
Elimination of excess inventory of manufactured goods, which had been expected by the fall, probably won't occur until next winter. Banks and financial institutions are struggling under the weight of bad loans. Smaller firms are experiencing a record number of bankruptcies. Consumer spending is beginning to fall off. And despite expanding exports that are creating a record trade surplus expected to exceed $120 billion, economists predict that growth could fall below 2% this fiscal year.
In 1991, the gross national product grew 4.5%.
Polls were unanimous in predicting a solid Liberal Democrat victory that would put a stamp of approval on a law Parliament passed in June to send noncombat troops overseas on a regular basis for the first time since the end of World War II.
Socialists tried to make protests against the law the central issue of the election but failed to arouse voter interest, Socialist Chairman Makoto Tanabe said Thursday.
Tanabe also called pre-election conditions "the worst in the history of the Socialist Party." He said he feared the party might win as few as 20 seats, compared with 46 in the last election three years ago when the Liberal Democrats lost their majority for the first time.
Such a result could bring calls for his resignation.
Polls have predicted such a strong showing for the Liberal Democrats that Shin Kanemaru, the party's vice president, protested. He charged that the media were involved in a "conspiracy" to convince ruling party supporters that they need not bother to go to the polls and to sway swing voters to cast ballots for the opposition.
Even a strong victory, however, would leave the Liberal Democrats shy of a majority. Although they would need 87 victories to restore the control of the chamber, they are fielding only 82 candidates.